Tag: Stock Markets

Productivity Masks A Deeper Threat

Americans are working hard, productivity data released on Friday showed, but the data might well be a leading indicator of economic distress.

Nonfarm productivity increased at an annual rate of 2.2% in the second quarter, which less than the 2.7% gain expected by economists polled by Thomson Financial, but still a strong showing.

The 2.2% increase reflected a 1.7% jump in output and a 0.5% decline in hours worked

Unit labor costs rose 1.3% as expected, down from the 2.5% increase in unit labor costs in the prior quarter. Wyss was pleased to see that there was not a lot of evidence of any pressure on labor costs.

Over the last four quarters productivity is up 2.8%, and unit labor costs are up 1.5%. That means the cost to employers of their workers trails that of consumer price inflation signifcantly. The Consumer Price Index for June was up 5.0% from the level the previous year. (See “U.S. Inflation Heats Up.”)

But in the manufacturing sector, productivity fell at a 1.4% annual pace in the second quarter, as output dropped faster than hours worked. Unit labor costs for manufacturers rose 6.1% in the quarter, the largest increase seen since the fourth quarter of 2006.

Financial markets did not show much direct reaction to the data. The yield on the 10-year government bond edged up to 3.95% from 3.93% late on Friday. More interesting was the dollar, which has been surging in recent weeks, though that may be more a reflection of expected slack in Europe’s economy than enthusiasm about America’s.

All in all, the economy looks good only if you have massive amounts of cash to play with in the markets.

How Bad Can The Economy Get?

This was from an article written in the WSJ by Mark Gongloff.

A full year into the miserable journey of the credit crisis, the economy and financial markets have come to a crossroads, beyond which lay several possible destinations, not all of them pleasant.

So far, despite bank losses of some $400 billion, a crumbling housing market and oil prices at $130 a barrel, the economy has managed to avoid a deep recession — at least according to the common definition, which is two quarters of negative gross domestic product growth.

But federal tax-rebate checks have supported consumer spending, which drives 70% of the U.S. economy. That jolt will soon fade, potentially leading to a hangover.

A resilient export sector — driven by a weak dollar that makes U.S. goods cheaper and more competitive overseas — has also kept the economy going and lifted the profits of many multinational corporations. But several big overseas economies are starting to feel the bite of inflation and the troubles in the U.S., and their appetite for American goods might wane.

Meanwhile, major U.S. stock indexes remained near bear-market territory despite a big drop in oil prices that sparked an impressive three-day rally. The Dow Jones Industrial Average rose 396 points, ending the week up 3.6%. The Nasdaq and S&P 500 also rallied last week.

As heartening as last week’s turnabout in oil prices was, however, the economy is still a long way from healthy. And there could be a lot more stock-market pain to come.

I would expect the WSJ to paint a fairly optimistic view of the economy, but if you live on Main Street in Poodunk, USA–the rosy is just not gonna explain why you are losing the house and cannot feed the kids.